Dean is a University Scholar and a senior accounting major in the Cox School of Business. In summer 2011, he is traveling to Hong Kong with the SMU-in-China Business program to get a firsthand look at modern China’s unique culture and business practices. He says he also plans to do some touring (and attempt to get by without knowing a single word of Chinese …)

Flaws in the gem

The events over the last several days have given me a bit of food for thought about how businesses operate, how much power parties in a business transaction can wield, the importance of connections, and just how different the culture is here.

It started with a class that contained, among other things, a discussion of China as a major market. Now, we all hear these days about how China is the biggest untapped market for everything under the sun (and then some), and that if a company can just crack the market, then there is oodles of money to be made and everything will be great forever. But today we got to hear about how it’s NOT quite the perfect market it’s often made out to be.

First off, China isn’t the world’s top exporter. It’s up there with Germany, Japan, and the U.S., but has vacillated around the #3 spot. It just gets more attention as an exporter due to the goods it exports being cheap and widely available, and thus more noticeable.

Which segues nicely into another point – China’s government has decided it’s time for China to step away from being the world’s factory. They want China to start producing fancier goods and focus on the domestic market. In the next few decades, the “Made in China” tag on an item will be a mark of quality; the production of cheap goods will be handed off to various other countries, such as Bangladesh. As China turns to focus on the domestic markets, it will become much harder for foreign companies to gain a foothold, and exports from China will decrease.

The country also has difficulties to overcome in the way it manages businesses due to the nature of the culture. The decisions of seniors cannot be challenged lest one appear disrespectful. Chinese factories also face issues with having to try to appear as if they are not being overly successful, for fear of regional officials coming to ask for more tax money.

Also bearing mention are some poor investment decisions due to officials being tempted to fudge numbers and ask banks to make questionable loans to help a province meet set growth targets to reap the incentive benefits, as well as nearly no money being spent in China on research and development of new products or indigenization of imported technologies.

Despite all the stuff I just talked about, China is still a very strong market. I just find that finally getting to learn about some of the imperfections of the situation gives me a more realistic view of things, which is exactly the sort of horizon-expanding stuff I came here to learn!

The Ladies Market: the power of the buyer

After that edifying lesson, we unwound with an afternoon trip to the Ladies Market, a big flea market. And no, it doesn’t just have items for ladies, though it started out that way, hence the name. It was a place that had a very alive feel to it with all the commotion constantly going on. Unexpectedly, however, it led to a powerful reinforcement of the first class’s lessons about the five forces of competition. One of those is the bargaining power of the buyer, and today would be a lesson like no other in just how much power the buyer can wield.

We immediately got under way with the shopping, checking out what the various stalls had to offer. There were lots of interesting items on sale that would make cool souvenirs. One thing I went looking for was a brush painting to hang back home. Many stalls had them on wall scrolls, so I asked at several how much they wanted for one. After doing so, I would immediately head to the next to ask so I could compare prices. Each time, as I left, the sellers immediately began dropping the price by incredible amounts. They know that many other stalls only a few steps away carry the same items, and that the only way to secure anyone’s business is to win on price. It was then that I realized how much power I held in this situation, and that I could use that power to haggle for some great deals.

I must say, I’ve been to flea markets before in America and Europe, but these sellers were the most persistent I’ve ever seen. Attempts to make me stay and buy an item ranged from grabbing my arm to following me down the street yelling at me. But with the nature of flea markets, the bargaining power was tipped in our favor as buyers, and we were able to secure some amazing deals by asking for lower prices or appearing disinterested in making a purchase.

In the case of one lady following me down the street yelling at me, she dropped the price of a large brush painting wall scroll from 280 to 250 to 200, then 150, then 100, at which point I finally turned around and agreed. And with the conversion rate of roughly 7.8 Hong Kong dollars to 1 US dollar that makes everything here pretty cheap, it became an even better deal. We all got some neat stuff at great prices.

Guanxi

The next afternoon, we had another company visit, this time with Multizen, a Hong Kong-based kid’s toy and candy maker, with mostly licensed items. If you’ve ever had Disney, Hello Kitty, or Spongebob Squarepants licensed candies, for example, you’re familiar with their products. Our meeting was with the founder and CEO.

He told us a great deal about being an entrepreneur in China, having started by himself with only $20,000, and today it is a multimillion company with branches in dozens of countries. He was very frank with us about the unique difficulties of entrepreneurship in China and the difficult times his company has faced.

What stood out for me the most was one particular word he stressed that made me think about how different the culture in China really is: “guanxi,” meaning “relationship.” The CEO is from China but went to boarding school and college in the States, and began doing business in China using very Western methods. This soon gave him problems. He told us that when doing business in China, a critical element of the culture is guanxi. It is very important to give face to government officials to show respect. This usually takes the form of taking regional officials out to a nice dinner and giving them gifts at the major holidays.

I grappled with this notion. It was hard not to think of this all as a bribe. And he understood that feeling. He told us that Hong Kong, as a Special Administrative Region within China (making it nearly autonomous), operates under the rule of law like the U.S., so being there made it a bit harder to see the difference. But mainland China operates under the rule of people. And Chinese culture dictates that seniors must be shown respect. It’s not bribery. It’s how the culture works.

Museum art and the art of life

After learning so much about the disparity between cultures, we decided to mellow out by spending the rest of the afternoon at the Hong Kong Museum of Art.

The museum had art of several kinds from ancient to contemporary. It was all pretty neat, but admittedly I don’t really get modern art, so for me the most interesting things were the centuries-old landscape brush paintings done on some very long scrolls. Aside from admiring their beauty, I spent some time ruminating on how much planning must have gone into placing each part on the unusually wide little papers, and how the same fog-wrapped mountains I first saw upon arriving inspired many of these paintings hundreds of years ago.

After we left the museum, we wandered the city streets to find a place to eat. On the way, we found a store carrying the infamously cheap DVDs I’ve heard are so abundant in China. They weren’t quite as cheap as I had heard, though they were still pretty darn cheap after factoring in the generous conversion rate. Anyway, we mostly wandered this way and that looking for an appealing restaurant, and all the while just admiring the city and how electrifying the air was, being abuzz with so much activity and so many people. Have I mentioned how crowded it is here? It’s seriously crowded here. The streets were jam-packed.

We ended up eating at a place several floors up in a building, and we were at a window with a nice view of the street we had just come from. We spent a lot of the meal gazing down at the hustle and bustle and the lights of the streets below. We all agreed it was rather pretty and captivating, and I realized we were gazing at another work of art, a very different but very special kind of art. So far, being here just hasn’t ceased to amaze!